Legal privilege should not extend to accountants, rules Court of Appeal

Legal professional privilege (LPP) is the right of a person or company to communicate with their lawyer in secret. Even in a trial that communication and the advice given by a lawyer can be kept totally secret.

Insurance company Prudential asked the Court of Appeal to overturn a High Court ruling and allow legal advice to be protected by LPP when it was given by accountants rather than lawyers.

The Court said that it could not interpret the law to mean that LPP extended to accountants, though it agreed with the High Court that such protection would be reasonable. It was not what the law said, though, said the Court, and changing the law is the job of Parliament not judges.

In stating the vital importance of LPP to the administration of  justice, the Court of Appeal quoted a judge in another case as saying that LPP is "a necessary corollary of the right of any person to obtain skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts before the adviser without fear that they may afterwards be disclosed and used to his prejudice".

In 2007 Prudential was served with notices demanding the disclosure of documents under Section 20 of the Taxes Management Act by Her Majesty's Revenue and Customs (HMRC). A 2002 court ruling established that such notices could not compel the disclosure of documents that were protected by LPP.

Prudential said that it should not have to hand over documents that contained legal advice on tax provided to it by barristers, foreign lawyers and accountancy firm PricewaterhouseCoopers.

Lord Justice Lloyd, giving the Court's ruling, accepted that it was modern practice that non-lawyers give legal advice.

"Nowadays, on many if not most occasions on which a person seeks advice about fiscal liabilities, which often involves a consideration of, and advice about, the relevant law, that person does so by approaching accountants rather than lawyers," he said. "[Prudential contends] that the rationale which lies behind the LPP rule requires that a client's communications with his advisers should be just as much protected from disclosure if the advice, being legal advice, is sought from and given by an accountant as it is if sought from and given by a solicitor or barrister."

Lord Justice Lloyd said that the House of Lords had ruled that the Taxes Management Act could not over-rule the principle of LPP, but that LPP had previously been extended to non-lawyers. "The earliest extension appears to have been as regards patent agents. Since then there have been other such provisions for trade mark agents and licensed conveyancers," he said.

A report on the powers of the Revenue Commissioners in 1982 recommended the extension of LPP to some advice given by accountants, but this was never acted on. The Director General of Fair Trading said in 2001 that the application of the rule only to lawyers distorted competition, but the then-Government said it would not change the law.

Lord Justice Lloyd said that this indicated that the non-extension of LPP was clearly the will of the democratically elected bodies that create law.

"Thus, not only has Parliament not created any statutory extension of LPP to legal advice sought from and given by accountants on tax matters, but this position has been reached after consideration of the position by several responsible bodies, making diverging recommendations on the point, including two committees, some of whose recommendations did lead to legislation. Parliament's failure to change the law in this respect is not an accident," he said.

"Moreover, as already noted, in the statutory context which is directly relevant in these proceedings, TMA section 20 (and since then the Finance Act 2008, Schedule 36), general reference is made to documents which are the subject of LPP, but specific provision is made as regards what a tax accountant or a tax adviser can and cannot be required to produce. Parliament has, therefore, addressed the point expressly in the material provisions," he said.

The High Court looked at a 1985 decision of the Court of Appeal, Wilden Pump Engineering versus Fusfeld, in which one side of the dispute sought LPP protection for communication with a patent agent.

"It seems to me that the position is that it is impossible to uphold an utterly wide test of privilege extending to any communication by the litigant with any person from whom he has sought, or happens to have received, advice on any point of law relevant to the litigation in question," said the judge in that case.

"It is far too wide, and the courts have never adopted such a wide approach. The narrow approach of the common law is to recognise certain types of person as being legal advisers, communications with whom on matters of law are privileged. Besides barristers and solicitors, this, it seems from the old authorities, originally also included scriveners and doctors of the civil law practising in Doctors' Commons and Proctors in the Ecclesiastical Courts – whether or not they were solicitors. But those were regarded as varieties of lawyer," said that ruling.

The High Court considered this a binding precedent that limited the application of LPP to lawyers, Lord Justice Lloyd said. He said that the ruling must be binding on his Court as well.

"I consider that this court is bound to hold that LPP does not apply, at common law, in relation to any professional other than a qualified lawyer: a solicitor or barrister, or an appropriately qualified foreign lawyer. That is the effect of [the] Wilden Pump [case]," he said.

"Even if we were not so bound, I would conclude that it is not open to the court to hold that LPP applies outside the legal profession, except as a result of relevant statutory provisions," said Lord Justice Lloyd. "In my judgment, only Parliament can provide the answers to such questions [raised during the case]. It is not a proper task for the courts to undertake. In other countries where LPP does apply in relation to accountants it is as the result of statutory intervention."

"Parliament has conferred limited protection in respect of accountants by TMA section 20, and its successor, the Finance Act 2008. The enactment of an extension of LPP to accountants, more general than that of TMA though not as general as that for which [Prudential] argues, was proposed by the majority of the [committee behind the 1982 report], but that recommendation has not been taken up," he said.

The European Court of Justice (ECJ) ruled recently on another proposed extension of LPP. It said that in EU competition law cases, communications from in-house lawyers to their employers should not be protected by LPP.

The Court said that employed lawyers suffered too great a conflict of interest because they were employed by the company they were advising and so their communications should not be protected by the secrecy rule.

In fact some advice by non-lawyers can be protected by LPP, but only in particular circumstances, said Julie Herriott of Pinsent Masons, the law firm behind OUT-LAW.COM.

"Communications between a lawyer or client and a third party are protected only if they are created for the dominant purpose of litigation which is pending, reasonably contemplated or existing," she said.

"If there is a challenge to privilege, then the party asserting privilege will have to submit evidence to the court that any reports and documentation produced by third parties have been prepared for the dominant purpose and in contemplation of litigation," said Herriott. “Companies might have to demonstrate that when they commissioned an investigation by a third party, they knew who they thought would sue them, the circumstances as to why this is thought to be the case, and why an investigation from the professional adviser is required."